The government needs to consider very carefully the trade-off involved in locking down the economy for a further period after Easter, writes Nick Mulcahy

When Taoiseach Leo Varadkar ordered the closure of schools and other educational establishments on March 12, overnight all these facilities lost their ‘customers’.

The impact was unequal for the staff involved. In state-funded schools, colleges and universities, nobody was laid off or made redundant. In the private education sector, where c.60,000 are employed, it was a different story. Thousands of people were thrown onto welfare payments or lost their jobs altogether.

When pubs and restaurants were shuttered a few days later, business dried up for thousands of self-employed tax drivers. Passenger numbers also plummeted 90% on public transport, but for three weeks Dublin Bus operated its normal service, with none of its drivers having to suffer the income pain of the taxi men.

Government has decided that there has to be a great national sacrifice to prevent public hospitals being overwhelmed with Covid-19 patients. However, the burden is not shared equally.

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Just under one fifth (18%) of Ireland’s labour force is paid by the state, and their income and pension entitlements are not affected by the social distancing lockdown. The four-fifths in the private sector aren’t so fortunate.

When social protection minister Regina Doherty and her officials formulated a response to overnight mass layoffs, they decided on a ‘pandemic payment’ amounting to €350 a week, limited to six weeks.

According to Doherty, in arriving at the €350 figure she referenced average pay in the accommodation and food service sectors, which is €380 per week. That ignored the much larger cohort of people employed in retail, where average weekly pay is €600 per week, according to Central Statistics Office data.

Also not taken into account was construction, where average weekly pay is €820. This is another sector where over 100,000 people have  been thrown out of work by government diktat.

Once upon a time, Pay Related Social Insurance could have made a difference. Way back when, when you lost your job your social welfare payment was a proportion of your pay. Individual and employer PRSI contributions are still pay related, but not the benefit payment. It’s a flat rate €203 per week.

The issue now is that the decision makers with no financial skin in the game risk inflicting long-term financial stress and misery on hundreds of thousands of people who can least afford it.

In its analysis published this week, the Central Bank laid bare the looming economic catastrophe.

Official data indicates 320,000 job losses before the introduction of the containment lockdown on March 28. The additional measures resulted in the closure of more businesses, including construction firms. .

There are many occupations and sectors where social distancing is not possible and where remote working is not applicable. The Central Bank estimates total employment in these sectors to be c.650,000.

The two main at-risk sectors are ‘accommodation and food service activities’ and ‘wholesale and retail’, which employed 183,000 and 309,000 people respectively in Q4 2019. Also not able to work are the 114,000 to 148,000 people (official data varies) employed in construction.

Though most building projects will resume when restrictions are lifted, the Central Bank says an overall reduction in employment of 450,000 to 500,000 is possible through Q2.

The hardest hit sectors are distribution, transport, hotels and restaurants, and arts and recreation. On the current trajectory, the Central Bank is expecting 80% to 90% declines in output in these sectors through Q2. Other services activities such as administrative and support services, rental and leasing activities, travel agency and real estate will also be adversely affected.

Income Shock

The Central Bank says that the immediate economic impact of the Covid-19 lockdown is an income shock on families. This is because the median household in Ireland has a financial buffer of just three weeks of gross income.

Further, the Central Bank calculates that three out of four households have medium or high risk of employment disruption due to the government lockdown and its consequences.

“Households with the highest risk of employment disruption account for almost a quarter of all households, and include those with members working in retail, wholesale, accommodation and food services,” the Central Bank adds. “These households hold less than 10 days – at the median – of their gross annual income as liquid assets.”

The Central Bank analysis also points out that the proportion of self-employment is greater in the sectors most at risk to disruption.

Social welfare buffers such as the time-limited €350 pandemic payment may keep the wolf from the door for a few weeks, but the longer the lockdown drags on the higher the risk of endemic unemployment taking root in Ireland again.

In its analysis, Central Bank economists posit rapid and recovery scenarios in the economy. In the prolonged recovery scenario, Ireland’s economy would not be humming at the same level as it was in January 2020 until late 2023.

That’s four years of business grind for entrepreneurs in enterprises that are currently closed due to government strictures. Will they bother making the effort? In any event, the Central Bank notes that some low margin or highly indebted firms may not survive the current shock.

In addition, the global recession will affect exports of SMEs and multinational firms, while output of other SMEs that provide inputs to the larger firms will also be affected.

The large-scale closure of hotels, restaurants, pubs and related decline in retail activity, along with the collapse in tourism, will reduce demand in the non-traded sector. There will also be a sharp reduction in consumption, and investment will decline due to weaker activity across the economy.

Whatever the scenario the Central Bank posits, it is forecasting that 330,000 fewer people will be in employment in December 2020 than at the start of the year.

That is economic calamity of the highest order. Is that trade-off worth it to stop the spread of Covid-19? Leo Varadkar, his ministers and Department of Health officials believe it is.

Those at the sharp end might beg to differ, though it seems nobody is listening to them.

Pix: RollingNews.ie